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In our previous class, we had an Introduction to Insurance.
We said, there are two types of insurance policies that are essential for every individual.
1. Term Insurance and
Introduction to Term Insurance
In this session, we shall discuss some basics about Term insurance policy and what to look for in it.
First, lets begin by seeing the definition of a term insurance policy:
Term insurance is a type of life insurance policy
=> that provides coverage for a certain period of time, or a specified "term" of years.
=> If the insured dies during the time period specified in the policy and the policy is active - or in force - then a death benefit will be paid.
=> If the insured survives for the entire "term" of the policy, no money is paid back to the insured.
From the above, it is clear that, upon death of the insured, the insured money goes to the nominee.
This is very important.
Because, if the bread earning member of the family has no life cover policy and dies, the other family members will not have any money to live or maintain the same life style.
Hence, if you take a term policy, you are securing the future of your family members.
Term Insurance and tax saving
Premiums paid up to maximum of Rs.1,00,000/- subject to maximum of 20% of Risk Sum Assured is eligible for deduction from Gross Taxable Income u/s 80C. This includes the term insurance plans too
How much term insurance is needed?
Preferably at the beginning of your financial year, check your income / profit made last year.
Was there any change in your life style / spending style?
Accordingly, upgrade your term insurance policy / life cover.
Thumb rule: You need a term policy that is a minimum of 10x of your annual income!
Your first priority is to keep the premium money aside for its renewal later during this year.
And to keep some more premium money aside for the next year too !